The United Nation's Food and Agricultural Organization, FAO, global food prices index reached a record high in December, 2010 reported the organization this week. The FAO food index tracks a basket of 55 key food commodities including items such as wheat, cooking oil and fats and sugar.
The index marked a record 215 points, beating the previous high of 214 set in June 2008 and up 4.2% in just a month. The recent inflation in agricultural commodities has been pronounced - 45% year-on-year. Sugar futures reached a new 30-year high and coffee futures reached a new 13-year high last week. Orange juice, corn, soybeans and palm oil have all stretched to near three-year highs in the past week or so.
“It will be foolish to assume this is the peak” said FAO senior economist Abdolreza Abbassian. He calls the situation “alarming,” but he did not use the word “crisis”. He added that surging prices for cooking oil, cereal and sugar in particular, “will affect millions of people”.
Data from across the globe shows how rising food prices are a global problem and food inflation in China, Vietnam, Argentina, Bolivia and Brazil is in double-digits. Algeria and Tunisia had to deal with food riots, Brazil has warned of trade war and France is taking the issue at the level of G20, the club of the world's 20 most advanced economies.
FAO says dairy product prices in international trade are already firm, while world prices of oilseeds, meals and oils could remain firm this season. In case of sugar, the international agency is predicting relatively high and volatile prices in the coming months.
But the big worry is wheat where global production is projected to decline by over 5% to 648 million tons due to unfavorable weather conditions in a number of major producing countries, especially in the Russian Federation. The closing stock could decline by almost 10% this year due to higher consumption, FAO says.
“Rising prices are re-emerging as a threat to global growth and social stability,” Robert Zoellick, President of the World Bank, wrote in a commentary for the Financial Times last week. Zoellick also stressed the importance of improving “long-range weather forecasting and monitoring, especially in Africa”.